In yesterday’s post, we began examining a recent audit of the Department of Justice with regard to its mortgage fraud division. Specifically, the Office of Inspector general reviewed several reports offered by the DOJ since the 2008 housing bubble burst and questioned the Department’s record-keeping and prioritization of this devastating crime. Surprisingly, despite the DOJ’s public assertion that it keeps mortgage fraud as a top prosecutorial priority, the report revealed that several FBI field offices placed mortgage fraud as one of their lowest priorities, with some offices candidly revealing that mortgage fraud is not a priority at all. As well, several attorneys agreed that they do not spend significant time prosecuting those engaging in mortgage fraud.
In response to these findings, the OIG offered several suggestions to the DOJ to step up its efforts in combating this crime. It pointed out that, while underwriting fraud has sharply declined since the implementation of new lending restrictions, other types of crimes have emerged, including short-sale and foreclosure rescue fraud.
In the fifth of its seven suggestions to the DOJ, the OIG encourages the Department to conduct a cost-benefit analysis when determining whether to pursue a person committing mortgage fraud. Specifically, it suggests that attorneys should assess and analyze monetary thresholds as they assess these cases and determine whether a case should be pursued in light of the possible recovery. These analyses are to be conducted within the context of the jurisdiction. It is also recommended that DOJ attorneys examine possible non-monetary sanctions against mortgage fraud defendants, including incarceration.
Lastly, the OIG suggests that the Department implement new measures to identify perpetrators of mortgage fraud, as these individuals often fly under the radar for several years – injuring thousands of distressed homeowners – before their crimes come to light. With a better understanding of how these criminals operate, the DOJ and FBI may be able to better isolate these crimes before too many struggling borrowers lose their homes.
Impact of the False Claims Act
The audit mentions the False Claims Act in several instances and points out its undeniable effectiveness against mortgage fraud. In light of the findings of the audit report showcasing the lack of attention mortgage fraud cases often receive by federal prosecutors, the False Claims Act stands out as a strong and effective tool to combat fraud against homeowners – mainly due to the fact that individual whistleblowers are able to bring their information directly to attorneys, thereby alleviating the need for the FBI to discover these crimes amid the vast landscape of criminal activity.
Specifically, the report mentions changes to the FCA as implemented by a 2009 statute known as the Fraud Enforcement and Recovery Act (FERA). Under FERA, the FCA was enhanced to more broadly define the term “false record” to include “any request or demand related to a government program and which will be paid from funds supplied by the government” (emphasis added). This update expanded the breadth of the FCA and allowed it to reach virtually any industry to combat fraud. In the words of co-sponsor Senator Patrick Leahy (D-VT), “the broadened definitions of the FCA will bring the United States one step closer to successfully prosecuting individuals who have defrauded the government and harmed the U.S. economy.”
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